Summary: Steem solves one key monetization issue of the internet by creating a new way of paying for content via dilution of its coin supply. This requires organic growth similar to the dilution percentage or higher if the ecosystem is to not deflate. Recently Bounties have been introduced to finance certain initiatives on steem. However I believe this misses the strategic potential of the tool. Bounties could be used to create cash-inflows that will allow growth and value without sending away value of the ecosystem. Instead of just giving money to content creators via a set dilution budget everyday, we can allow users to ask question or support certain topics by adding bounties to their posts. Users might do this because they are seeking a certain type of content. Anyone could ask the internet a question, put a bounty on it and the world would compete for the best answer. As such bounties could be a whole new way information exchange on the internet can be rewarded. By implementing bounties the right way, steem can create one more new monetization layer for the internet and become much more valuable than just with one way of monetizing its content.

The recently proposed bounty system falls short of its potential for steem. I want to outline why bounties can be a game changer for the internet and how steem could implement them for mutual benefit.

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The monetization issue of the internet

The internet has a monetization issue. There are pretty much three ways content is monetized:

• Ad model: sites provide advertisement and every view is worth a tiny amount of money. For instance 1000 minutes on youtube tends to be wort about $1 or even less.
• Subscription: because the above only works for very cheap and mass media content well there are subscription where customer may pay a monthly fee: examples are Netflix or poker training site.
• Pay per View: customer pay for a particular content such as a movie or news article.

All of these monetizations have issues. The ad model only works if your content is valuable for a mass audience and ads are annoying. Some people also hate the way sites like google and Facebook are using private data of their customers. The subscription makes it hard for people to sign up, because it creates a monthly bill and once customers have signed up you are stuck with a limit to your revenue. Pay per view has the challenge that many people are used to getting their content for free and create a barrier to consume it because of its price. Subsriptions and pay per view additionally have the problem of having a planned price, while we know planning the correct price leads always to a sub-optimal solution.

The limit of the internet with bad monetization

The internet connects everyone in the world and should make it easy for any information to float freely. However that is not the case. The reason is that while information can be exchanged freely value cannot be exchanged so easily. This is because to provide information to the web, it only makes sense if it fits into the limited monetization channels described above. You may still need to consult regular specialist when having an advanced or specific question. You can't ask the internet to solve a problem for you, unless it is something simple that some nice guy or gal will answer for you on a forum like reddit or if many people have the exact same question.

The internet needs a better way to exchange information for value via an efficient market for content and information. Imagine you want to go on a trip and want to know what is the best way to vacation for you personally at a wonderful spot like Machu Picchu. You can ask @heiditravels since she has been there in the comments of one of her post, but she is likely going to give you an artificial answer, because consulting you on how to travel there requires work and understanding your requirements. So you probably have to research this yourself by reading articles, books and finding youtube videos that help you. This is all much easier because of the internet, but still the internet does not allow you to actually get a direct exchange of information for you, even if you are willing to pay for it. I had this problem last year when I visited the Galapagos and the fact that I did not know certain things cost me a bit of money, because the way I booked things was not optimal. I.e. I should have booked my day trips on the island instead of going through my travel agency in the US. I also could have saved money 1/2 of the cost by booking the boat cruise on the island, I just did not know this was possible.

Subscription, pay per view and ad based monetization suffer from the fact that only content that happens to be as valuable as many people are ready to pay for it can be exchanged fluidly. That means instead of the market determining the price of content, the information that is the right price finds its way to the internet. The rest of the knowledge we hold stays away. It does not fit the rigid and limited pricing model of the internet.

As a result most of our knowledge actually does not get exchanged via the internet because there is no good way of valuing that exchange. Imagine what untapped potential the internet has. In other words what would happen if you could just ask the internet for any information or question and it would spit it out for the right price.

"For the right price" has not been implemented and thus most of the stuff you can find on the internet is not that valuable, unless it is to help you generate revenue for someone else (like specification of a product) or concerns the masses (news) or cost what many people want to pay for it (blockbuster movie).

The problem steemit solved and did not solve

Steemit is an amazing solution to the broadcasting of mass information. It has solved the problem of rewarding and paying for content without needing ads, subscription or payments. That is an amazing accomplishment. I have written several articles here and brought some friends to this site that have also written articles, they would have otherwise not published. It allows content to be valued if people appreciate it, instead of if they click on banners, which is a much more direct and better way of exchanging value. I'd be surprised if many news outlets are either not going to be put out of business by steem or are going to adopt steem somehow in the next few years.

However steem still requires a certain amount of people to like content. For instance if you know something that is really valuable for one person on steemit, you will not get rewarded, even if the information is very valuable to few. So why bother, or give it away when you can probably charge for it? However if you write something that many people like, you will be rewarded very well. So steem in its current form still only works for content of a certain price, that many people want to consume. Of course the whale aspect changes this a bit, but not fundamentally.

Bounties can be a new way of monetizing the internet

To make steem more powerful in this regard we can use bounties. Because bounties can be set at different price levels we can now value content higher, even if only one person needs or wants the information.

So back to my question of how to best vacation at Machu Picchu: I can ask the question on steem and will probably not get many upvotes to my question. Because it is not very valuable content for many. I will probably also not get the greatest answers because my vote alone won't entice people to do the work of answering my question. However if I put a bounty on my question this changes the game fundamentally. People that can answer the question will now compete for the bounty and thus will have to put effort into providing a good answer. If a good answer will likely safe me a few hundred dollars, why not put this question on steem with a $100 or $200 bounty? The difference is that it used to be smart not to provide an answer, while now it is profitable to provide information.

Bounties could also be used to promote certain topics. I.e. if steem wanted to generate a certain type of content like i.e. cat-videos, there could be a bounty on cat-videos. The creators would get additional rewards, in addition to all the existing people that love cat-videos on steem and therefore would vote for them anyway, and thus would be enticed to publish even more cat videos on steem. This could then attract new cat lover users and generate growth for steem.

Bounties could be a great way to support the creation of new communities on steam. For instance if we wanted to have daily bitcoin chart analysis on steem and bring traders onto the site, this could be facilitated with the creation of a specific tag and corresponding bounty for traders.

The difference of this ad campaign would be that instead of giving value to an outside eco-system like google we would grow the steem economy by creating internal value (the money creators will receive from the bounties) instead of burning the marketing budget to some external service.

Steemit needs cash-inflow

Steem gives content providers rewards. It pays for these rewards by creating more coins, which dilutes the value of the existing coin holders. In order for the economy to be sustainable, cash-inflow is required to be higher or at least similar to this outflow of money. The balance of these two forces happens via an exchange market. New investors or users of steem buy steem tokens to either power them up or use them otherwise, while content creators tend to cash out at least some of the coins they receive. In addition existing coin holders may also decide to liquidate their steem by selling. In short we need new users or investments to join the ecosystem and buy coins in order for it to not deflate, due to the cash-outflows generated by the reward system continuously. Investors are banking on the fact that the money they put into the system will attract content that is more valuable than the money they are investing and thus will create a positive ROI.

In addition to the inflow via investments, steem has also just recently created a way to create inflows via promotions. Since the money used to promote post gets burned and thereby reduces the coin supply, it effectively creates cash-inflow to the ecosystem.

Bounties would create yet another channel of cash-inflows, since users would directly give other users money without going thru the cycle of investment which has to attract great content that will attract more users, which will invest more to overall grow the steem economy. You can see how that a bounty system would create a financial cycle that would be much more direct.

Both the promotional cash and the bounty cash will have a much more immediate effect and ROI and thus the flow of money and new users will likely be easier. Overall these different ways of creating cash-inflows will complement and support each other.

I believe that bounties would create value for the steem ecosystem because it would attract new users that possess certain knowledge but do not have the ability to land the big hits via writing great blog posts. Additional users with need for information and questions would be attracted to the site.

The key competitors of steem use pay per view and transaction fees

The key competitors of steem use direct payments for content. In synereo one can pay for the attention of a specific user. In LBRY one can pay directly for a particular content. Similarly Yours plans to use micro transactions to pay for content and charge a fee for these transactions. The way steem pays for content is very new and unique and I think it will do very well vs. these cash flow strategies. Still I think it will be beneficial to have more than one monetization channel in order for steem to compete with these new social media blockchain ecosystems. Providing a way to pay for content more directly than via dilution will simply make steem more competitive and double its potential for growth.

The above is a diagram of how I would envision the cash in- and out-flows for the steem economy with bounties and promotions.

Functional requirements of a bounty system for steem

I want to quickly outline how I envision bounties to work on steem

The bounty button

Similar to the promotion button, there should be a bounty button next to every post that allows anyone to put a bounty on a post. The bounty should be paid in SB only, just like the promotions. In addition to the ability to put bounties on one article there should be the ability to put a bounty on a hashtag. This dialog could be accessible via the menu bar. Potentially the promotion and bounty menu could also be integrated.

When selecting a bounty, there should be a timeline that defines when the bounty is being paid. I think it would make sense to allow intervals up to the 30 days after the post was created, due to the functionality of steem. It might also make sense to have 3 time intervals such as 1 day, 1 week and 1 month.

All the bounty payments per pay period should be escrowed by the blockchain and the cumulative amount should be displayed on the post and the distribution of it on each post respectively in parallel how the reward money is visualized.

Paying out bounties

The bounty should be paid out to all the comments of a post according to how readers of the post have voted for it. If the bounty is for a hashtag than all level 1 post with that hashtag will receive the reward. The users that have paid for the bounty thereby should get a higher weight of their votes relative to how much of the bounty they have contributed, so that they define the majority of payout (i.e. 75%). Notice that flagging or negative votes are possible in the same way as for regular votes.
Example: Assuming two users A and B with the same amount of SP and a bounty that has been placed by B for 1000 SD and user A voting for comment x and user B voting for comment y. When the time for the payout arrives, the bounty should be distributed as 75% or 750SD to comment y and 250 SD or 25% to comment x and y such that comment y receives 875SD and comment x 125SD. If the SP of the users where different, than the 25% would be distributed according to SP weight in the same manner that steem distributes posting rewards.
This is to entice everyone to evaluate the solution to the bounty even if they have not paid for it and to ensure that a bounty can be paid even if some of the bounty posters do not vote for a solution.

The reward of the bounty of course should be in addition to the regular voting rewards steem pays out anyway.

I don't think there is any reason to use part of the bounty as curation reward, since curation reward is already paid anyway and the bounty provider have intrinsic incentive to distribute the bounty fairly.

I would also suggest to convert 50% of the payout into steem and distribute them via SP. This will decrease the SD supply and keep the steem ecology healthy.

Please provide feedback

This proposal for bounties has been thought out by myself and as such, I am sure it can be optimized and might have flaws. So please provide feedback. I will read and assess every comment and if needed make adjustment to this post. I hope @Dantheman @Dan and @Ned will find the time to read and comment on this as well.

Conclusion

I think bounties could propel the value of steem for its users and greatly improve the economics of steem. It seems to me that bounties would fit naturally into the reward and voting system of steem so that introducing them would come very intuitively to users. I can think of many use cases where I would use them and happily put significant value into the ecosystem to get a particular answer. The key value of bounties is that users can define how much certain information is worth to them and thus solve a key issue of the exchange of value via the internet.

Steemit could leverage the functionality for marketing purposes, for instance to support a new language or a new topic and users we want to attract the site by putting bounties on hashtags.

I hope this proposal is being read and optimized by many steem users and ultimately by the steemit team, so that it has a chance to be integrated into the blockchain. I hope that on my next big trip or when I have specific technical question, I can just put up a bounty and have the internet generate the answer for me personally.

Thanks for reading, commenting and upvoting. Please follow me and check out my other post if you think this was valuable.